DC Plans Riding High on the Equity Markets

Positive stock market performance and increasing
contributions drove average 401(k) and individual retirement account (IRA)
balances to record levels during the second quarter of 2017, according to data
shared by Fidelity Investments.

Both IRAs and 401(k) plans are up nicely compared with this
time last year. The average IRA today has $100,200 invested, up from $89,600
last year and $73,100 five years ago, while the average 401(k) holds $97,700,
up from $89,100 last year and $73,300 five years ago.

Far and away the most impressive gains were measured among
those people who actively maintained and contributed to their 401(k) account for
the preceding 10 years. This group, Fidelity reports, saw their balance
increase to a record average of $266,100, up from $78,800 in Q2 2007.”

“The 10-year growth is attributed to 53% market action and
47% employee contributions, which shows the benefit of saving and investing
with a long-term view,” Fidelity experts observe. Also notable, Fidelity’s
yearly analysis of small business retirement plans, which includes self-employed
401(k) accounts, self-employed (SEP) IRAs and Savings Incentive Match Plan for
Employees (SIMPLE) IRAs, indicates average balances have increased by double
digits since Q2 2016. In particular, the data shows the average balance for self-employed
401(k)s increased 10% to $162,700, while the average balance for SEP IRAs
increased 14% to $100,400. The average balance for SIMPLE IRAs grew to $39,000,
an increase of 10% from Q2 2016.

Not all the signs in the analysis are positive, of course.
For one, rising stock markets could very likely lead to overexposure
in equities among 401(k) and IRA investors not taking advantage of
automatic rebalancing; Fidelity says target-date funds and managed accounts can
help keep investors on track. Beyond this, Fidelity’s analysis shows more than
one in five employees did not contribute enough to their 401(k) to take full
advantage of their company’s matching contributions.

Fidelity researchers suggest the stock market’s performance
over the last several years “means people may have a greater allocation of
stocks in their 401(k) accounts than we would recommend. This could expose
their retirement savings to unnecessary risk in the event of a market downturn.”

Again highlighting the value of managed accounts and TDFs, Fidelity
found that fully 40% of those who managed their own 401(k) asset allocation had
a stock allocation in their 401(k) that was higher than recommended, up from 38%
in Q2 2016.